Fidelity: Expecting the Fed to join the rate cut bandwagon, bullish on long-term outlook for Japanese equities and tech stocks

Fidelity International pointed out that the probability of a soft landing (low growth and low inflation) in the US economy has increased overall, as growth and inflation have slowed, and the Fed is expected to join the rate cut bandwagon, while loose financial conditions are unlikely to pose the risk of a recession, so Fidelity maintains a positive view on risk assets and remains bullish on equity market prospects, and is cautiously optimistic on credit. As geopolitical tail risks rise and the uncertainty of the US election, the investment strategy suggests a global quality dividend strategy, mixed with high quality US dollar bonds as the main core asset allocation to hedge market volatility, and remains bullish on long-term outlook for Japanese equities and technology stocks.

Fidelity International said the Fed, as expected by the market, kept the federal funds rate in the target range of 5.25% to 5.5%, marking the eighth consecutive rate hold, with the benchmark rate remaining at a 23-year high. Inflation has eased over the past year, and the trend of deceleration has expanded from goods to core services and core services of housing and housing services, with confidence that price pressures will continue to decline, and the Committee recently deemed “substantial progress” towards the 2% inflation target.

The Fed said the labor market has recovered to pre-pandemic levels, but the labor market maximization target is facing downside risks, and it stressed that it is monitoring the labor market and remains vigilant to potential sharp declines. The Committee also said the risks of achieving the employment and inflation targets continue to balance towards balance, and future attention will focus on the dual risks faced by the two tasks. If inflation continues to decelerate as expected, and the economy maintains reasonable strong growth, and the labor market remains stable, the Fed is likely to discuss rate cuts at the September FOMC meeting, but the first 0.5% rate cut is not currently considered.

With the market's attention on the US election, Powell said that if the Fed cuts rates, it is absolutely not related to politics, and stressed that the Fed will never try to set policy based on the results of an election that has not yet taken place.

Fidelity International's macro and strategic asset team said the Fed will keep rates unchanged as the market expects, but the Fed's signal of rate cuts has been sent by the clear progress of inflation and the labor market, and Chairman Powell also hinted at the start of the rate cut cycle in September. Although this FOMC meeting lacked forward guidance, the post-meeting statement and press conference still sent a strong signal. Overall, Fidelity believes that the uncertainty around Fed policy this year has significantly decreased, and the policy direction in 2025 will depend on the results of the US election, and the future development of trade and fiscal policies.